Understanding Mineral Leasing Terminology

The process of leasing your mineral estate can be confusing and difficult since if you don’t understand what ownership of a mineral estate means to you. It is important when considering selling or leasing your property that you understand every aspect of the process so you can make knowledgeable decisions that will be best for you and your property.

Mineral Estate Leasing Stages

When you are planning on leasing your mineral estate it is vital you know what the stages of the lease are and what it means to do so. The four main stages of mineral right leasing are:

  • Ownership – as an individual, you have ownership and rights to the minerals beneath the land that your property sits on. A legally binding mineral title is generally the only document that authenticates mineral ownership. The three aspects of ownership are legal description, mineral acres, and ownership type.
  • Leasing – Oil companies lease minerals to bring oil and gas reserves to market. Before excavation can begin the mineral owner and oil companies must agree on terms and conditions regarding each parties rights, privileges, and obligations during the exploration process. Generally, in exchange for a lease bonus payment and the promise of a percentage of the royalties if there is any value in the production of the materials, the mineral owner grants the oil company the right to drill and excavate for a specific amount of time.
  • The division order – This is a binding contract between an oil company and the mineral estate owner. The division order is used to show a schedule of how mineral revenues are divided up between both the mineral estate owner and the oil company. Terms that need to be discussed and decided on are the term of the lease, royalty rate, bonuses, and rental agreements.
  • Royalty check – The mineral estate owner may receive regular royalty checks if oil, gas, and other minerals of value are excavated and used or sold by the oil company. These checks may fluctuate according to prices in oil and gas or may discontinue if wells stop producing marketable quantities of oil and gas.

Ready to Lease

It is vital that you know what it means to you to be a mineral estate owner and what is fair when it comes to entering into a lease or selling your property to an oil company. As long as you know your rights as an owner, you should be ready to negotiate terms with an oil company, but if you are ever unsure, you always have the right to speak with a professional. Contact us today for more information!